Activity-Based Management

What is Activity-Based Management?

• Activity-Based Management (ABM) analyzes the cost of an activity in relation to the value added by the activity to achieve operational and/or strategic improvement.

How it Works?

• Identification involves finding and listing a company's significant business activities and their cost drivers.
• Evaluation and Value-Chain Analysis quantify the value generated by each activity to compare it to the cost and evaluate the activity.

Steps in ABM

• Identification and Analysis: find and list significant business activities and their cost drivers.
• Evaluation and Value-Chain Analysis: quantify the value generated by each activity to compare it to the cost.
• Identifying Opportunities to Improve: use analyzed information to identify and implement process improvements.

Types of ABM

Operational ABM

• Studies the cost of each activity to increase operational efficiency by enhancing value-generating activities and eliminating unnecessary costs and non-value-generating activities.

Strategic ABM

• Analyzes the profitability of an activity, such as launching a new product or acquiring a new customer.

Types of ABM (continued)

• Cost-Driven ABM: aims to reduce costs without compromising product or service quality.
• Value-Driven ABM: aims to increase customer satisfaction and loyalty, leading to increased sales and profits.

Advantages of ABM

• Improves customer experience.
• Increases profitability.
• Provides crucial financial information for future forecasting.

Disadvantages of ABM

• Time-Consuming.
• Costly.
• Complex.